OPINION
DISCOUNT DEALS ASK AN EXPERT...
D
eal sites like Groupon can bring in new business, fi lling off -peak time in spas which
would otherwise languish unused. But getting the right balance between
the needs of your regular, full-rate cli- entele and deal customers is a fi ne art
– done badly it can fatally undermine the business, while done well, it can send extra profi t straight to the bottom line. Because the deals industry is a new
sector and is developing and changing rapidly, offi cial terminology is thin on the ground, making it diffi cult to analyse, given the lack of categorisation of deal types. T ere’s also a surprising lack of research being done on the deal sector. However, it seems to be understood
that there are two types of deals, deep discounts which can be up to 80 per cent and drive larger volumes – while also threaten- ing to destablise the business if not carefully handled – and sustainable voucher deals which are more likely to be value-added and run in the range of 30-50 per cent. T e basic transaction remains the same
with both, in that a web consolidator, who’s invested in capturing contact details for a specifi c clientele, markets an off er to them via the web/ezine/email/SMS, takes payment upfront and splits the income with the spa.
TRANSACTION
T ere are many issues to be resolved on the way to a successful deal – timing, profi t mar- gin, the cut negotiated by the deal site and most importantly, how you square any dis- counts you off er with regular customers. So what are the pitfalls? Some of it’s com-
mon sense – spas must ensure off ers are sold at break-even at worst and ideally with a profi t margin, because although it may feel good when a big cheque arrives from the deal site, if your fi nal tally shows a loss, then you’ll regret the day you signed up. Done well, daily deals can introduce a
whole new set of clients to your spa and if you impress them, you could turn them into regulars, but there’s evidence that customers at the cheaper end of the deal spectrum are less likely to return, with return rates as low as 2 per cent being reported on clients who bought heavily discounted deals.
Daily deal sites have their roots in the dotcom boom
but have come into their own over the last three years since the launch of Groupon.
Today, businesses selling time-based experiences report that up to 40 per cent of their business is attracted this way
T e volume of business generated by a
deal is a key issue, because as soon as deal customers have signed up, they want to book and snare themselves a prime time slot for their treatment and this spike in phone traf- fi c can be hard to handle. As well as creating a bad fi rst impression
for new customers who are excited about their purchase, only to fi nd frustration at their inability to book, this can also prevent regular, full-rate customers from getting through – the last thing a spa wants is to swap new, low-price customers for premi- um-paying customers simply because they can’t handle the call volume. Deals sites are now experienced enough to
be able to predict the likely volume of traf- fi c which any given deal will generate – it’s in their best interests to understand these formulae too – so spas are advised to tai- lor their deal choices and phone-answering capacity accordingly.
SOLUTIONS
T e next challenge is calculating how many premium time slots to allocate. Although the agreement can be structured so deals are only off ered at off -peak times, the advice from the experts is to include a proportion of premium time slots, so buyers aren’t made to feel second rate. T is will also increase the deal customer’s perceived value of the deal. Using online booking systems has very real advantages at this point, because as well
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as cutting down phone traffi c – or even eliminating it if the deal is marketed as an online-only off er – online booking ena- bles the spa to straightforwardly block out times it doesn’t want the deal to apply to. It also makes it easier to spread discount slots over the lifetime of the deal – usually six months – to make sure the spa contin- ues to service a balance of discount and full-price customers. When people buy deals, they’re paying
for a treatment in advance and trust- ing that they’ll be able to use it before it expires – and at a reasonably convenient time. T ey’re then relying on the spa to be fair in the delivery of the service that they’ve bought or giſt ed. Social media sites are littered with complaints from customers who’ve
bought deals but have been unable to use them satisfactorily and any shortcomings in delivery such as this will have a detrimental eff ect on a spa’s reputation – and ultimately the value of the business. If a treatment is paid for but not used,
the payment typically belongs to the spa, although in some US states, it can revert to the state legislature. T e ‘breakage’ – or percentage of deals which are unused – var- ies from deal to deal, but operators report it running between 10-30 per cent, with higher rates of non-redemption for deals with longer shelf lives.
OPPORTUNITIES
Crediting deals is both an art and a science. Some sell better than others and because the agreement between the spa and the deal site is eff ectively a profi t share, there’s a negoti- ation to be done to make an arrangement which works for both parties. Deal sites will refuse to take on deals they believe won’t generate enough volume, because ultimately they have limited deal-marketing capacity and need to optimise this. Industry feedback seems to indicate that
Groupon favours doing deals with newer spas that want to kick start their businesses and that oſt en these early deals are struck very much to Groupon’s advantage as the new spas learn how the process works. T e deal site has no vested interest in the fi nancial health of the spa and eff ectively the cheaper
SPA BUSINESS 4 2011 ©Cybertrek 2011
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